Who Willed the Electric Car? China, and Here’s Why

by Lauren Silva Laughlin (Wall Street Journal) Electric vehicles that derive their power from dirty energy aren’t necessarily better for the environment, but they are better for Beijing -- Exxon Mobil Chief Executive Officer Darren Woods recently took a shot at electric vehicles. Speaking at the Oil and Gas Climate Initiative late last month, he quipped that their purpose could be defeated if the vehicles are powered by electricity derived from burning coal. READ MORE

Excerpt from The Economist: China is set to whizz out of the automotive slow lane. Chinese carmakers already make more cars than those of any other country. They also make more electric cars than anyone else, laying a claim to the industry’s future.

Mark Wakefield of AlixPartners, a consulting firm, identifies a key component of this as a “strategy to dominate” electric vehicles. The idea has many attractions. Several Western governments have called time on internal-combustion engines which burn fossil fuels. Emission rules in Europe are tightening, Britain and France have said they see no role for cars powered only by internal combustion after 2040. So the market seems there.

Carmakers all around world know that this transition is under way. Tesla is built on it; some incumbents, like Volkswagen, are thoroughly on board. But quite a few European, American and Japanese firms are holding back. Some of those concentrating on the mass market think high battery costs mean electric cars will not be profitable for some time.

The strategy also fits with China’s other industrial strengths. It is a huge producer of batteries and wants to be the biggest in the world, in the same way that it has become the dominant provider of solar panels. Chinese battery-makers are growing rapidly and signing deals with lithium producers around the world. CATL, the biggest car-battery maker in China, is building a new plant second only in size to Tesla’s gigafactory in Nevada. China’s total planned battery-making capacity is three times that which the rest of the world will construct.

Electric vehicles have attractions that go beyond the benefits to the car industry and synergies with battery-making. As Bill Russo of Automobility, a consulting firm based in Shanghai, points out, China is keen to reduce its oil imports, currently the largest in the world. It also wants to clean its air and cut its carbon-dioxide emissions. Electric vehicles will not make a huge impact in these respects as long as China’s grid is largely fired by coal. But reducing the exhaust-pipe emissions on city streets is a plus even if smoke keeps belching from power-plant chimneys.

China’s government has used several means to increase both the supply of electric vehicles and the demand for them. Carmakers earn tradable credits when they produce “new energy vehicles”, which include hybrids and fuel-cell-powered cars as well as electric cars. This year carmakers are required to earn or buy credits equivalent to 10% of their internal-combustion-engine sales. In 2020 the requirement will be 12%. Such rules may disadvantage foreign manufacturers, all the more so when, as it is rumoured, they get to hear of changes later than domestic companies do. The non-Chinese battery-makers with which foreign car companies like to work, such as LG of South Korea and Panasonic of Japan, were until recently restricted in the Chinese market.

To stimulate demand, electric vehicles are generously subsidised and exempt from purchase taxes. They are also exempt from the restrictions placed on the purchase of cars with internal-combustion engines in six of the biggest cities. Further measures include requiring public-sector bodies to buy electric vehicles—a big boost for buses—and favouring car-sharing businesses that use them. The country’s charging infrastructure is far ahead of the rest of the world’s. Beijing has more public charging points than Germany.

Together, these stimuli have created an electric-vehicle boom (see chart 2). Chinese electric-car sales are expected to hit 1.5m this year, compared with 1.1m in 2018. Colin McKerracher, head of advanced transport at Bloomberg New Energy Finance, goes so far as to suggest that the current rapid rate of growth in electric-vehicle sales, coupled with the decline in overall car sales seen last year, may mean that sales of cars powered by internal-combustion engines in China have already peaked.

Compared with the thriving home market, Chinese exports of electric cars remain small so far. But its busmakers are showing the way. Almost all of the 400,000 electric buses in circulation around the world were made in China. Most are used at home, easing congestion and pollution, but exports are growing. According to BYD, one of China’s biggest bus manufacturers, its vehicles are used in more than 300 cities in other countries.

Exports are not the only route to global power. The size of the Chinese market will help to “suck the world’s [electric-vehicle] supply chain into China,” says Mr Russo. Western mass-market carmakers keen to electrify but struggling with the investments required may increasingly license technology or buy hardware from Chinese firms. If more of the supply chain for electric vehicles is in China than anywhere else, Chinese-made power trains may become the global standard.

The speed with which China is taking the lead in electrification puts it in a good position to profit from its convergence with two other distinct but related big shifts in transport; autonomy and sharing. In the West, companies from the technology world, not the carmaking world, are in the driving seat. The same is true in China, where the “big three” internet giants, Alibaba, Baidu and Tencent, are at the centre of a web of investments in autonomous cars and mobility apps as well as electric vehicles. READ MORE